The Ontario Securities Commission has ruled that Bay Street fund manager Wayne Pushka acted in an “appalling” fashion and breached his fiduciary duty to investors in a 2009 deal to buy the management rights for 13 Citadel investment funds.

An OSC hearing panel ruled Monday that Crown Hill Capital Corp. and Mr. Pushka, who was its chief executive officer, acted improperly in the Citadel deal, which saw Mr. Pushka’s firm borrow $28-million from a related investment fund he managed to finance the purchase of the Citadel management contracts. The Citadel funds had over $1-billion of assets under management.

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The loan represented more than 60 per cent of the value of assets held in the Crown Hill Fund at the time, and OSC staff alleged that the loan was an inappropriate use of unitholders’ money. Commission staff also alleged that the money was inappropriately borrowed and the purchase completed before unitholders of the fund were notified about a meeting to vote on approving the transaction.

The OSC hearing panel ruled Monday that a circular sent to unitholders to approve the transaction in 2009 “was materially misleading.” The hearing panel also concluded Mr. Pushka and Crown Hill Capital acted inappropriately on other transactions, including another purchase of a different fund’s management rights also using money borrowed from the Crown Hill Fund.

“In our view, Pushka orchestrated all of these events and transactions, manipulated them to obtain his intended outcomes and knew exactly what he was doing,” the hearing panel ruled in a written decision released Monday.

“At times he misled the independent directors of the [Crown Hill Capital] board and the members of the [independent review committee] but, in any event, he failed to make full disclosure to them. … Over all, Pushka’s conduct was appalling for a person in a fiduciary relationship with [Crown Hill Fund].”

The OSC has not set a date yet for a hearing on sanctions in the case.

Mr. Pushka argued at the OSC hearing that he operated honestly and in the best interests of the Crown Hill Fund, and said the business transactions were structured on the advice of legal counsel and approved by independent members of his company’s board.

He also argued that there was no evidence from the OSC that the transactions caused unitholders to lose money, or that the deals were outside the range of normal business.

The hearing panel ruled, however, that Mr. Pushka was in a conflict of interest on several related-party transactions and did not manage the conflicts appropriately, or even disclose them fully to directors reviewing the transactions.

The OSC panel, for example, said Mr. Pushka told members of the board’s independent review committee studying the Citadel transaction that the deal was “clearly in the unitholders’ interest.” The panel ruled it was a “shocking characterization” of a deal that involved “a very material related-party transaction.”

“He did not fairly describe the reorganization as a related-party transaction under which [Crown Hill Capital] would substantially benefit,” the OSC ruled. “To the contrary, Pushka appears to have suggested that he would not benefit from it.”

Crown Hill announced last year it is getting out of the business of managing investment funds and transferred management of its two main funds to another company, representing a significant winding down of the company’s operations.

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